Starwood is one of the world’s largest hotel and leisure companies. Starwood’s
status as one of the leading hotel and leisure companies resulted from the 1998
acquisitions of Westin Hotels & Resorts Worldwide, Inc. and certain of its
affiliates (“Westin”) (the “Westin Merger”) and ITT Corporation (the “ITT Merger”),
renamed Sheraton Holding Corporation (“Sheraton Holding”) and the 1999 acquisition
of Vistana Inc. (renamed Starwood Vacation Ownership, Inc. or “SVO”). The Company
conducts its hotel and leisure business both directly and through its subsidiaries.
The Company’s brand names include St. Regis®, The Luxury Collection®, Sheraton®,
Westin®, W® and Four Points® by Sheraton. Through these brands, Starwood is well
represented in most major markets around the world. The Company’s operations are
grouped into two business segments, hotels and vacation ownership operations.
The Company’s revenue and earnings are derived primarily from hotel operations,
which include the operation of the Company’s owned hotels; management and other
fees earned from hotels the Company manages pursuant to management contracts;
and the receipt of franchise and other fees.
The Company’s hotel business emphasizes the global operation of hotels and
resorts primarily in the luxury and upscale segment of the lodging industry.
Starwood seeks to acquire interests in, or management or franchise rights with
respect to properties in this segment.
Premier and Distinctive Properties. Starwood controls a distinguished and diversified
group of hotel properties throughout the world, including the St. Regis in New
York, New York; The Phoenician in Scottsdale, Arizona; the Hotel Gritti Palace
in Venice, Italy; the St. Regis in Beijing, China; and the Westin Palace in
Madrid, Spain. These are among the leading hotels in the industry and are at
the forefront of providing the highest quality and service. Starwood’s properties
are consistently recognized as the best of the best by readers of Condé Nast
Traveler, who are among the world’s most sophisticated and discerning group
of travelers.
Scale. As one of the largest hotel and leisure companies focusing on the luxury
and upscale full-service lodging market, Starwood has the scale to support its
core marketing and reservation functions. The Company also believes that its
scale will contribute to lowering its cost of operations through purchasing
economies areas such as insurance, energy, telecommunications, technology, employee
benefits, food and beverage, furniture, fixtures and equipment and operating
supplies.
Diversification of Cash Flow and Assets. Management believes that the diversity
of the Company’s brands, market segments served, revenue sources and geographic
locations provides a broad base from which to enhance revenue and profits and
to strengthen the Company’s global brands. This diversity limits the Company’s
exposure to any particular lodging or vacation ownership asset, brand or geographic
region.
The Company’s primary business objective is to maximize earnings and cash flow
by increasing the profitability of the Company’s existing portfolio; selectively
acquiring interests in additional assets; increasing the number of the Company’s
hotel management contracts and franchise agreements; acquiring and developing
vacation ownership resorts and selling VOIs; and maximizing the value of its
owned real estate properties, including selectively disposing of non-core hotels
and “trophy” assets that may be sold at significant premiums. The Company plans
to meet these objectives by leveraging its global assets, broad customer base
and other resources and by taking advantage of the Company’s scale to reduce
costs. The uncertainty relating to the timing and strength of recoveries in
the North American and European economies, combined with current political and
economic environments in South America, the Middle East and other parts of the
world and their consequent impact on travel in their respective regions and
the rest of the world, make financial planning and implementation of our strategy
more challenging.
Growth Opportunities. Management has identified several growth opportunities
with a goal of enhancing the Company’s operating performance and profitability,
including:
• Continuing to expand the Company’s role as a third-party manager of hotels
and resorts. This allows Starwood to expand the presence of its lodging brands
and gain additional cash flow generally with modest capital commitment;
• Franchising the Sheraton, Westin, Four Points by Sheraton and Luxury Collection
brands to selected third-party operators and licensing the Westin, W and St.
Regis brand names to selected third parties in connection with luxury residential
condominiums, thereby expanding the Company’s market presence, enhancing the
exposure of its hotel brands and providing additional income through franchise
and license fees;
• Expanding the Company’s internet presence and sales capabilities to increase
revenue and improve customer service;
• Continuing to grow the Company’s frequent guest program, thereby increasing
occupancy rates while providing the Company’s customers with benefits based
upon loyalty to the Company’s hotels and vacation ownership resorts;
• Enhancing the Company’s marketing efforts by integrating the Company’s proprietary
customer databases, so as to sell additional products and services to existing
customers, improve occupancy rates and create additional marketing opportunities;
• Optimizing the Company’s use of its real estate assets to improve ancillary
revenue, such as condominium sales and restaurant, beverage and parking revenue
from the Company’s hotels and resorts;
• Continuing to build the “W” hotel brand to appeal to upscale business travelers
and other customers seeking full-service hotels in major markets by, among other
things, placing Bliss Spa®, which the Company acquired in January 2004, in “W”
hotels and expanding the W brand to resorts in non-urban areas;
• Innovations such as the Heavenly Bed® and Heavenly Bath®, the Sheraton Sweet
SleeperSM Bed and the Sheraton Service PromiseSM;
• Renovating, upgrading and expanding the Company’s branded hotels to further
its strategy of strengthening brand identity;
• Developing additional vacation ownership resorts and leveraging our hotel
real estate assets where possible through VOI construction and residential or
condominium sales;
• Leveraging the Bliss product line and distribution channels; and
• Increasing operating efficiencies through increased use of technology.
Starwood intends to explore opportunities to expand and diversify the Company’s
hotel portfolio through minority investments and selective acquisitions of properties
domestically and internationally that meet some or all of the following criteria:
• Luxury and upscale hotels and resorts in major metropolitan areas and business
centers;
• Major tourist hotels, destination resorts or conference centers that have
favorable demographic trends and are located in markets with significant barriers
to entry or with major room demand generators such as office or retail complexes,
airports, tourist attractions or universities;
• Undervalued hotels whose performance can be increased by re-branding to one
of the Company’s hotel brands, the introduction of better and more efficient
management techniques and practices and/or the injection of capital for renovating,
expanding or repositioning the property;
• Hotels or brands which would enable the Company to provide a wider range
of amenities and services to customers; and
• Portfolios of hotels or hotel companies that exhibit some or all of the criteria
listed above, where the purchase of several hotels in one transaction enables
Starwood to obtain favorable pricing or obtain attractive assets that would
otherwise not be available or realize cost reductions on operating the hotels
by incorporating them into the Starwood system.
Starwood may also selectively choose to develop and construct desirable hotels
and resorts to help the Company meet its strategic goals, such as the ongoing
development of the St. Regis Museum Tower Hotel in San Francisco, California
which is expected to have approximately 269 rooms and 102 condominiums.
Competition
The hotel industry is highly competitive. Competition is generally based on
quality and consistency of room, restaurant and meeting facilities and services,
attractiveness of locations, availability of a global distribution system, price,
the ability to earn and redeem loyalty program points and other factors. Management
believes that Starwood competes favorably in these areas. Starwood’s properties
compete with other hotels and resorts, including facilities owned by local interests
and facilities owned by national and international chains, in their geographic
markets. The principal competitors of Starwood include other hotel operating
companies, ownership companies (including hotel REITs) and national and international
hotel brands.
Starwood encounters strong competition as a hotel, resort and vacation ownership
operator and developer. While some of the Company’s competitors are private
management firms, several are large national and international chains that own
and operate their own hotels, as well as manage hotels for third-party owners
and develop and sell VOIs, under a variety of brands that compete directly with
the Company’s brands. In addition, hotel management contracts are typically
long-term arrangements, but most allow the hotel owner to replace the management
firm if certain financial or performance criteria are not met.